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As the economy goes digital, many companies make the switch and end up generating significant amounts of data. Managing all this new data becomes a chore, but it’s only a small part of the larger challenge. These organizations have started to realize that their data has real underlying value. For example, they find that it can be extremely useful to monitor worker performance in ways that client companies never envisioned, and to tie the tasks of thousands of employees in new ways that make operations even more effective. more efficient.

A whole new industry is emerging to meet this need. Today, we’re focusing on two companies that offer tools to reveal the hidden performance provided by data, and they help organizations leverage data to drive more revenue. Their ability to provide this service helps them increase their own income. This suggests that their stocks could be great long-term bets for your portfolio.

Let’s find out a little more about these two data-driven growth stocks.

Image source: Getty Images.

1. Workiva binds organizations together

Digitizing operations means using an abundance of different applications. For example, the pandemic has accelerated the use of collaborative documents accessible anywhere, as it allows employees to work together from remote locations. But it does mean that critical data is often spread across different programs and in different places. Workiva (NYSE: WK) provides tools to resolve this issue.

The company’s platform integrates with dozens of popular apps to link them together, giving organizations a way to access all of their data in one place. It is particularly useful for aggregating financial information, which can then be used to submit regulatory documents, report profits to the market, and manage internal audits.

Workiva serves 3,949 customers, 75% of which are Fortune 500 companies. But its customer base is growing fastest at the high end of the spending curve, suggesting that more and more large customers are interested in the products they are working on. Workiva has to offer.

Metric

Q2 2020

Q2 2021

Switch

Global clients

3,512

3 949

12%

Customers spending more than $ 100,000 per year

716

952

33%

Customers spending over $ 150,000 per year

342

500

46%

Data source: Workiva.

Workiva’s revenue growth has accelerated as more of these paying customers sign up, with a 29% increase in subscription revenue in the second quarter, outpacing the expansion in annual revenue.

Metric

2018

2021 (Estimate)

TCCA

Returned

$ 244 million

$ 431 million

20.8%

Data source: Workiva. CAGR = compound annual growth rate.

The company uses a software-as-a-service model, which means the majority of its revenue comes from recurring subscriptions. In the second quarter, it recorded a revenue retention rate of 111.6%. When revenue retention is above 100%, it suggests that the business is increasing revenue just as much through cross-selling products to existing customers. It also means that it is less dependent on acquiring new customers to grow the business. Workiva’s customer base appears to be loyal, likely because they are satisfied with the company’s products.

Because the management of Workiva is more focused on growing the business right now and investing funds in expansion, marketing and product research, it is not yet profitable. But its finances are moving in the right direction and analysts expect it to do so in 2022. The company operates on a very high gross margin (well above 70%), so it has some leeway to invest in growth because it can significantly reduce spending. easily to generate net profits if necessary.

With a market cap of $ 7.1 billion, the stock is trading at a price / sell multiple of 16 times the expected turnover this year. This figure is normally high, but relatively in line with the competition and reflects market confidence. With profitability potentially nearing, perhaps now is the time to buy for the long-term potential of the business.

Two people analyzing data on a huge digital screen

Image source: Getty Images.

2. New Relic aggregates complex data

New Relic (NYSE: NEW) focuses on a slightly different problem. He specializes in telemetry data monitoring.

For example, New Relic can offer customer experience insights on an e-commerce website, aggregating data on load times, server connections, and the ability to handle more traffic during peak periods. New Relic can pinpoint the source of a given problem so that it can be resolved faster, thus saving the time required to hunt down service providers one by one.

At a more complex level, enterprise products can consolidate multiple monitoring applications onto a single, simple dashboard, which is an attractive proposition for large organizations.

New Relic has over 14,100 customer accounts, but only 964 of them account for 79% of all revenue. They are high paying clients, each spending over $ 100,000 per year. Like Workiva, New Relic’s revenue retention rate hovers around 111%, a sign of healthy and recurring demand from its existing customers.

Metric

2017 financial year

Fiscal year 2022 (Estimate)

TCCA

Returned

$ 263 million

$ 732 million

22.7%

Data Source: New Relic. New Relic’s fiscal year ends March 31. CAGR = compound annual growth rate.

Revenue growth has been strong, although the $ 732 million in FY2022 revenue that the company is projecting represents only a 10% growth from FY2021. decelerating from the compound annual growth rate of 22.7%, prompting the company founder to step down from his role as CEO earlier this year in favor of a new independent manager, Bill Staples.

In the recent release of fiscal first quarter results, Staples identified its # 1 priority as returning company revenues to market growth rates. The good news is that you can buy the stock now at a price / sell multiple of just seven times, which puts you in an excellent position to benefit from any performance improvement.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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